Bulgarian CompetitivenessB d 2000Beyond 2000

Presentation by

Kevin X. MurphyP id tPresidentJ.E. Austin AssociatesOctober 2000

Bulgarian CompetitivenessB d 2000Beyond 2000

Presentation by

Martin WebberVi P id tVice PresidentJ.E. Austin AssociatesOctober 2000

Outline of the Presentationf

Importance of CompetitivenessWhat is Competitivenessat s Co pet t e essCompetitiveness Business Strategy-Implications of the DiamondImplications of the DiamondLook at the Microenvironment of BusinessI l ti C titiImplementing Competitiveness

Purpose of Initial Visitp f

1. Present Tools of Competitiveness

2. Share Examples from Other Countries

3. Discuss Relevancy to Bulgaria

Why is Competitiveness Emerging as the #1 I f L d ?Issue for Leaders?

GlobalizationLib li tiLiberalizationPrivatizationWTO/Regional Trade AgreementsTechnological ChangeTechnological ChangeUrgent for Transition Economies

Globalization: Victors or Victims?Globalization Is Not Optional. Why?

Pace of Change Has AcceleratedPace of Change Has Accelerated.Technology Is Driving Change.WTO Setting Global Trade Rules.Financial Markets Lift or Bring Down Nations.Achieving Competitiveness Is Key ToAchieving Competitiveness Is Key To Security.Not Size of Missiles but Speed of CComputers.We Compete with Our Imagination, Not Locks and Keys. (N. Negroponte, MIT)y ( g p , )

Source: Thomas Friedman, The Lexus and the Olive Tree, 1999

J. E. Austin Bulgaria’s Competitiveness B h kBenchmarks

Sector Percentile RankSector Percentile Rank

COMPOSITE AVERAGE 52%Human Resource and Workforce Competitiveness 65%Infrastructure 64%Science and Technology Competitiveness 58%Science and Technology Competitiveness 58%Policy Environment 51%Investment Competitiveness 52%Fi i l S t 31%Financial Sector 31%Export Competitiveness and Tourism 41%Economic Performance 69%

Where is Bulgaria on the Map of C i i ?Competitiveness?

Indicator 1997 1999d cato 99 999GDP Growth (ranked by % Growth) -7.0% 2.4%Exports/Capita $537 US $481 USExport % of GDP 61% 44%Export % of GDP 61% 44%ICRG Risk Rating 76.6 71Overall Budget Deficit -15.4 1.50%GDP I li it D fl t (I fl ti ) 109 00% 0 4%GDP Implicit Deflator (Inflation) 109.00% 0.4%FDI as % of GDP 4.9% 6.3%FDI - Privatization as % of GDP 3.1% 4.4%

Source: World Bank Indicators World Bank 2000 and Bulgaria National Bank

Telephone Density (fixed lines per 1,000 people) 323 329Human Development Index 0.758HDI Value 0.772HDI Value

Source: World Bank Indicators, World Bank 2000 and Bulgaria National Bank.

Is Bulgaria Attracting F i Di I ?Foreign Direct Investment?

Share of FDI/

CountryFDI in US$ Millions

Population Millions

World Population

Share of Global FDI

FDI per capita

Population Ratio

Percentile Rank

Singapore $10 326 3 164 0 05% 0 78% 3264 20 14 43 95Singapore $10,326 3.164 0.05% 0.78% 3264.20 14.43 95Ireland $4,038 3.705 0.06% 0.30% 1089.88 4.82 88Spain $32,539 39.371 0.67% 2.45% 826.47 3.65 83Czech Republic $2 609 10 295 0 18% 0 20% 253 42 1 12 75Czech Republic $2,609 10.295 0.18% 0.20% 253.42 1.12 75Hungary $2,414 10.114 0.17% 0.18% 238.72 1.06 73Romania $2,040 22.503 0.38% 0.15% 90.65 0.40 53

$ 0 26 42Macedonia, FYR $118 2.010 0.03% 0.01% 58.52 0.26 42Bulgaria $401 8.257 0.14% 0.03% 48.61 0.21 37

Source: World Bank, 2000.

Economist’s E-business Readiness Ranking

Ranks a country’s infrastructure for E-Business based on:Business based on:

• Connectivity• Literacy rates• State of the telephone network• Teledensity

Di l t• Dial up costs• The general business environment

Selected E-business Rankings0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0

US

Singapore

Ireland

France

JapanJapan

Poland

Greece

Indonesia

BULGARIARomania

Philippines

India

Pakistan

Euro-E-Business Ratings0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0

Sweden

UK

I l dIreland

France

PolandPoland

Hungary

Czech Republic

Greece

Slovakia

Turkey

BulgariaRomania

Ukraine

ICOR Investment/Output Ratio 1995-1998p

H K EstoniaGDI as % of GDP

Hong KongHungary

Bulgaria 1980-1990

Estonia

Singapore PolandSlovenia Lithuania

20%

gTurkey

Spain Croatia Latvia

Greece IrelandGreece Ireland

Bulgaria 98Bulgaria 95-98 (-2.5)

Romania (-6)

Sierra Leone

17:1 6:1 2:1

( )

17:1 6:1 2:1

GDI/GDP as % of GDP Growth

What is Competitiveness?p

Dependency on Natural Resources and GNP Per Capita

Percentage of Exports in Natural Resources and GNP Per Capita in 1998

$35 000

$30,000

$35,000

United States

Sw itzerland

$20,000

$25,000

Australia

Singapore

Netherlands Canada

Sw eden

$10,000

$15,000

Chile

Argentina

South Africa

$0

$5,000

0 10 20 30 40 50 60 70 80 90

VenezuelaBulgaria

Russian FederationPeru

Trinidad and Tobago

EgyptBolivia

ColombiaRomania

China

0 10 20 30 40 50 60 70 80 90Percentage of exports in raw materials calculated as the percentage of merchandise exports in agricultural raw materials, metals and ores, and fuels.Source: World Development Report 2000.

Selected Global Commodity Prices 1960 1999 (1990 100)

400

WheatSoybean Oil1960-1999 (1990=100)

200

300

Soybean Oil

Source: World Bank Development Indicators

0

100

1960 1965 1970 1975 1980 1985 1990 1995 1997 1998 1999

CopperIron 1960 1965 1970 1975 1980 1985 1990 1995 1997 1998 1999

Sugar

4,000

5,000

6,000

7,000

Copper

T bB fDownward Trend in 0

1,000

2,000

3,000

1960 1965 1970 1975 1980 1985 1990 1995 1997 1998 19991960 1965 1970 1975 1980 1985 1990 1995 1997 1998 1999

1960 1965 1970 1975 1980 1985 1990 1995 1997 1998 1999

6,000

8,000

10,000

400

600

TobaccoBeef Commodities Prices

0

2,000

4,000

1960 1965 1970 1975 1980 1985 1990 1995 1997 1998 19990

200

1 2 3 4 5 6 7 8 9 10 11

Textile Industry Wages

$20 00

$25.00

Hourly Labor Wage

(U.S.$)

$15.00

$20.00

( )

$5.00

$10.00

$0.00

Japa

nan

ceIta

lyU.SSpa

insra

elaiw

anKore

aRicaex

icoRep.

vado

ray

siamaladu

rasail

and

ragua

China

Haiti

ades

hkis

tanne

sia

Jap

Fra It U Sp Isr Taiw

South

KoCos

ta R

Mex

Domini

can R

El Salv

aMala

yGua

temHon

duTh

aila

Nicarag Ch H

Bangla

dPak

isInd

one

Low cost strategies based on low cost wages provide an unstable competitive advantageSOURCE: Bobbin Magazine 1999 averages,developed countries statistics are from Gherzi Textile Organization

Dangers of Factor Driven Strategies Wage GrowthTextile Industry Wages

25

30

15

201990

1993Hourly Labor Wage

(U.S.$)

5

10

( )

0

Japa

n

Fran

ce

Italy

U.S

Spa

in

Isra

el

Taiw

an

Hon

g K

ong

Por

tuga

l

outh

Kor

ea

Mex

ico

Arg

entin

a

Col

ombi

a

Mor

occo

Thai

land

Egy

pt

Indi

a

Pak

ista

n

Chi

na P

R

Per

u

H S

CAGR1980-93 19.2% 8.9% 0.1% 5.0% 0.9% 2.9% 8.1% 8.0% 10.4% 4.3% 9.8% 20.2% 2.6% 4.7% 5.1% 4.1% 8.2% -8.0% 4.1% -0.9%

Low cost strategies based on low cost wages provide an unstable competitive advantageSOURCE: Monitor Company and Gherzi Textile Organization

The Productivity of LaborThe Productivity of Labor

Value Added per Person EmployedValue Added per Person Employed

$50,000

$60,000

$20,000

$30,000

$40,000

USD

$0

$10,000

and xico azil bia hile ela gal rea

ece wanand tria ark den Ita

ly ain alia ada

and ong ium tes

Thaila

nMex

icBraz

Colombi

Chil

Venezue

l

Portuga

South Kore

GreecTaiwa

FinlanAus

tri

Denmar

Swede Ita Spa

Austra

li

CanadIre

lan

Hong Kong

Belgium

United State

Source ILO 1998 and 1997 data

Hourly Compensation (USD)

$25.00

$30.00

$20.00

$25.00

$15.00

$5.00

$10.00

USD 0.65

$0.00

Lank

aul

garia

Mex

ico

ortu

gal

Chin

aTa

iwan

hKo

rea

Gre

ece

Spai

nIre

land

ngdo

mus

tralia

Cana

daIta

lyFr

ance

Stat

esJa

pan

erla

nds

Finl

and

Aust

riaen

mar

kSw

eden

elgi

umer

land

sze

rland

erm

any

Sri Bu M Po

Hong

Kon

g, T

Sout

h G IUn

ited

Kin

Au C FUn

ited

S

Neth

e F A

Den

Sw BeNe

the

Switz

Wes

t Ger

Source: ILO, Bulgaria estimate based on the Economist Intelligence Unit

The Tourism TrappDependency on Charter OperatorsStruggle to Manage ImageFailure to Capture High V lValueEasily Replicable StrategyStrategyLow Wage Rates Persist

Competitiveness is NOT…C p O

Abundant Natural ResourcesAbundant Natural ResourcesCheap LaborCheaper CurrencyBetter Government “Incentives”Better Government “Incentives”

Definition of Competitivenessf f p

Sustainable Growth in Productivity yDriven by:

Quality of business strategy and operations which is affected by:

Macroeconomic environment

Microeconomic environment

The New Competitiveness ParadigmSource: Michael Porter, 1998,

Political, Legal, and Macroeconomic ContextPolitical, Legal, and Macroeconomic Context

Sophistication Sophistication of Company of Company

Operations andOperations and

Quality of the Quality of the Microeconomic Microeconomic

BusinessBusinessOperations and Operations and StrategyStrategy

Business Business EnvironmentEnvironment

Microeconomic FoundationsMicroeconomic FoundationsMicroeconomic FoundationsMicroeconomic Foundations

The Competitive DiamondS Mi h l P tSource: Michael Porter

Strategy, Strategy, StructureStructure& Rivalry& Rivalry

Gov't

FactorsFactors DemandDemand

The ClusterThe Cluster

Fairbanks’ 7 Opportunities

1. Improve Customer Learning2 Explore Forward Integration2. Explore Forward Integration3. Innovate4 Cooperate with Cluster4. Cooperate with Cluster5. Understand Competitive Position6 Avoid Over Reliance Basic Factors6. Avoid Over-Reliance-Basic Factors7. Avoid Government Paternalism

SOURCE:Plowing the Sea

The Competitive DiamondF i b k ’ O t itiFairbanks’ Opportunities

Strategy, Strategy, StructureStructure& Ri l& Ri l

Gov't

& Rivalry& Rivalry

Know Your Relative Competitive PositionKnow When and When Not to Forward

Integrate

Avoid Paternalism

FactorsFactors DemandDemand

g

Avoid Overreliance on Basic Factors of Advantage

Improve Understanding of Customers

Overcome Defensiveness

The ClusterThe Cluster

Improve Interfirm Cooperationp p

DEMAND

Strategy, Strategy, StructureStructure& Rivalry& Rivalry

Gov'tDirect Contact with sophisticated and

demanding consumersSize and segmentation of local demand

FactorsFactors

gNumber of independent buyersThe speed of growthHow fast the home market gets saturated

The ClusterThe Cluster

Internet savvy customersMobile local buyersAbility to monitor and respond to trends

Examples: Italian Shoes, Israeli Fish, Southern Rainbow

Exploring Forward Integration: E l C t Fl V l S tExample: Cut Flower Value System

180.0154 2

Net Revenue Per Rose Stem for Each Component of Value System

120.0

140.0

160.0

51 4

154.2

U.S.

14.60 0

80.0

100.0

23.4

17.0

51.4

25.7

Cents

14.6

20.0

40.0

60.0

0.0Grower

(Bogota)Air Freight(Bogota-Miami)

Broker(Miami)

GroundTransport

(Miami-Boston)

Wholesaler(Boston)

Retailer(Boston)

Boston)

Source:Monitor Company, based on Interviews in Mexico, Colombia, Miami, Boston, Monitor Analysis

FACTORS

St tSt t Gov't

BASIC-Climate

Strategy, Strategy, StructureStructure& Rivalry& Rivalry

Gov t-Fertile Land-Location Proximity-Availability of basic inputsSt bl d h lth l i l diti

DemandDemand

-Stable and healthy ecological conditions-Labor Force

ADVANCEDKnowledge resources

The ClusterThe Cluster

-Knowledge resources-Access to capital resources-Infrastructure: availability of ports-Research capabilityp y-Tele-density-Management and Technology

Examples: Honduran Textiles, DR Tourism, Sri Lanka Gems